CHAMPAGNE / GLOBAL MARKETS: Expansionism

The greatest problem currently facing the Champenois is how to make enough wine to satisfy demand, but even this is not putting the brakes on developing new markets in Asia & the Far East. Richard Woodard reports

The Champenois have almost certainly seen nothing quite like it before. About 400 Chinese distributors and key contacts descended on Reims last year in a mini-invasion from beyond the bamboo curtain. Their mission? To find out more about Champagne in general and Mumm and Perrier-Jouët in particular, part of the handover process following Pernod Ricard’s purchase of the houses from Allied Domecq.

Nothing better illustrates the global reach of Champagne, and its potential for growth in emerging markets like China and India. Currency fluctuations and production concerns may have forced price rises but, with a buoyant global economy creating more Champagne drinkers every day, there are plenty of customers ready to pay the extra.

Export shipments climbed by nearly 9% in the year to June and, although this figure is likely to diminish to around 4% by year-end as price rises dampen demand, the outlook is bright almost everywhere.

Six-monthly shipment figures can be a little misleading, so we shouldn’t read too much into the falls in the UK and Belgium, although both of those markets are unlikely to register the biggest rises in the Champagne league table for 2006. Several houses report a flattening in the phenomenal sales rises in the UK over the past decade, while the Belgians’ apparent refusal to come to terms with anything bar non-vintage is frustrating many, not least market leader Laurent-Perrier.

Otherwise, the biggest cloud on the horizon is that sales are probably rising too fast; as the region nears its production ceiling, short- and long-term measures are needed to feed the global thirst for Champagne. Enlarging the appellation will help, but it’s likely to be 12-15 years before the first grapes are harvested from the “new” Champagne vineyards.

Meanwhile, it’s likely that from the 2007 harvest, the maximum yield will be increased from 13,000kg/ha to 15,000kg/ha, with the balance going into the region’s qualitative reserve. Wary of accusations of sacrificing quality for quantity, the CIVC is also looking at introducing personal reserves for each grower, and declassifying anyone whose yields are astronomical (probably beyond 20,000kg/ha).

Mature markets
Returning to the markets, while nobody doubts the long-term potential of countries like China and India, it’s still the established markets of the West which are getting the most attention. The sales increases and overall potential here may not be quite so spectacular, but this is still where Champagne does most of its business.

In any case, it would be a mistake to believe that mature markets have run out of potential. For example, Champagne Devaux can find a niche in European markets simply because the consumer is so well-informed about Champagne.

“They seek out exclusive Champagnes which are not to be found on the supermarket shelves,” says Devaux export director, Jean-Noël Girard. “This represents a good opportunity for some of our niche wines such as the Devaux Rosé Intense.”

“Looking at the per capita consumption in Europe, it’s quite good, but there is room for development,” points out Vranken-Pommery Monopole vice-president, Paul Bamberger. The company has a 55/45 split in favour of the French market, but is investing strongly in Germany and Belgium, while strengthening its UK positioning through firmer pricing on Heidsieck Monopole.

But another area exciting Bamberger’s interest, the US market, is set to be the big battleground in the years ahead. Pommery was out of the US market for some years but is slowly rebuilding, partly on the cachet of the Pop sub-brand. Now Bamberger has aggressive growth plans, aiming to double the company’s market share to 10% within three to four years.

A bold projection, but Yves Dumont, chairman of the management board at Laurent-Perrier, is wary of predictions in the US. Describing it as, “a continuing disappointment”, he says the company, like many others, is nowhere near the sales forecasts made six or seven years ago. This has been partly caused by the weak dollar, which has forced a programme of price rises  and has discouraged investment behind brands. But now, at last, this is changing.

“We are on the verge of developing a very aggressive campaign behind Moët & Chandon to reinvigorate the brand as part of our international strategy, using our new packaging,” reveals Moët president and CEO Frédéric Cuménal. And he’s not alone. In fact, the market leader has a queue of other brands behind it.

Rémi Krug has high hopes, pointing out that prestige cuvées are huge Stateside: “So it should be our first market by far, but it is not yet.” The installation of former Krug MD, Mark Cornell, as president of Moët Hennessy USA encourages optimism. “We were sad to lose Mark, but it is still good news for us,” says Krug.

It is also part of Bruno Paillard’s plans for the rebirth of Lanson, which he describes as “not having the position which it should have” in the US, while Bollinger has high expectations following a switch of importer to Paterno a couple of years ago.

The future of Champagne?
In comparison, growth projections and brand strategies in the emerging markets of Asia have a decidedly long-term look about them. China, in particular, inspires hugely contrasting opinions among the houses. For Mumm Perrier-Jouët’s communication director, Olivier Cavil, it is “the future of Champagne”, where people who are already used to buying premium spirits can adjust their mindset to another premium product like Champagne relatively easily. It’s also fair to say that distribution under Pernod Ricard is likely to be far stronger than it was in the days of Allied Domecq.

Bamberger echoes many in the region when he says that China is where Japan was 15 years ago, but Laurent-Perrier’s Dumont is not quite so convinced, pointing out that Champagne has a long way to go before being accepted as part of Chinese culture.

“You can change your car or your phone, but you don’t change the way you celebrate your birthday,” he says. “I’m not among those who are projecting a boom. There are impressive percentages, but in volume terms, it’s not huge.” Indeed not. While professing interest in urban centres like Shanghai, Jacquart managing director, Jean-Marc Pottiez, points out, “Even with Hong Kong and Singapore, the Chinese market is smaller than Austria
and Ireland.”

Interesting India
Pottiez sees India as a more immediate prospect for growth – assuming the government does something about lowering its crippling import tariffs – simply because there are fewer cultural hurdles to clear, thanks to the sub-continent’s historic links with the UK. “In five years, it will be very interesting,” he says.

For many, it is simply too early to be getting heavily involved in such small, complex markets, especially when there are still so many challenges and opportunities in established markets. They prefer, in the words of Louis Roederer’s managing director, Frédéric Rouzaud, to allow the powerhouses like Moët to open up the markets first.

So it’s presumably good news that Moët’s Cuménal is up for the fight, expressing huge enthusiasm for the US, Western Europe, Russia and Asia – actually, just about everywhere. “The prospects are phenomenal,” he says. “The cost of doing business [in emerging markets] is very high and those consumers require education.

“You need to have people – the right sort of people – and you need to invest money. You have to be a pioneer. But pioneering is part of our DNA,” says Cuménal. At the risk of being labelled kill-joys, we should add one word of caution. As Dumont points out, Champagne’s current success is built on: “A wonderful economy worldwide. No recession, low interest rates, low inflation. It’s difficult to say that it will get better than that, but we all know the economy will go through another cycle,” he adds.

There are already signs of that in rising unemployment and inflation in the UK, not to mention the levels of debt in the US. Add in terror alerts and war in the Middle East and you are reminded forcibly that, however rosy the current export picture and however great the potential in emerging markets, there are some events which Champagne simply cannot control.

The tsar, the rapper and the prestige cuvée
When it was originally created for Tsar Alexander II, Champagne Roederer’s luxury cuvée Cristal was the epitome of 19th century bling showmanship. More recently it has earned an unlooked-for and unlikely cult status among rappers and hip-hop artists in the US – but now that status is under threat.

At first glance, the comments made by Roederer’s managing director, Frédéric Rouzaud, about Cristal in a magazine interview in June seemed innocuous enough. But his non-committal answers when asked about his feelings on Cristal’s cult reputation were (completely erroneously) interpreted as racism by rapper Jay-Z.

The result was a boycott by hip-hop artists and the dropping of Cristal from Jay-Z’s clubs. A few months on, Rouzaud has grown rather weary of the row – “If he doesn’t want to drink Cristal, that’s his problem” – and has other, more pressing matters on his mind. Not the least of which is satisfying demand for the company’s Champagnes, with Cristal and Brut Premier both on allocation. The company has always resisted the temptation (unlike one or two others) of ratcheting up production to chase demand, but at least now there is the prospect of a little more Champagne to go round.

Roederer signed a contract three years ago for 30ha of grape supply from the Côte des Blancs, which is just beginning to feed through to boost production of both Brut Premier and Cristal. Not by much, admittedly, but it should help to feed key strategic markets like Japan, where Rouzaud believes Roederer has much to gain from associations with food, and Spain, where Moët’s stranglehold has been relaxed in recent years.

© db October 2006